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Tax Vista Your weekly tax recap Edn. 15 - 28 September, 2020 By Dr. G. Gokul Kishore |
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Time of publication in e-gazette determinative of rate of duty - Supreme Court
In a first of its kind landmark judgment from the Supreme Court, it has been held that time of publication of notification in the e-gazette is relevant. This means the increased rate of customs duty would apply only for imports made after the time stamp as mentioned while affixing digital signature by the officer concerned at the time of uploading in the government portal.
Notifications, particularly those relating to increase in rate of duty or exemption, take effect from the date when they are published in official gazette. In Customs, due to various contingencies like ship could not be berthed, goods could not be unloaded, etc., assessment would take place at a date when the rate of duty on imported goods has been increased. The department used to argue that the increased rate would be applicable while the importers, based on presentation of bill of entry, had to contend that pre-revised rate would apply. Landmark judgments were delivered by the Supreme Court and various High Courts on this issue. Later, in Param Industries [2015-VIL-164-SC-CU], the Supreme Court even held that mere issuance of notification is not sufficient but it should be offered for sale to public to take effect. But these cases related to analogue or manual filing of documents whereas the statutory scheme today reflects e-governance and e-service delivery.
In cases of goods imported for home consumption, Section 15 of Customs Act provides for determination of rate of duty as per the rate in force when the bill of entry is presented. Section 46 provides for electronic filing of bill of entry. As per Regulation 4(2) of Bill of Entry (Electronic Integrated Declaration and Paperless Processing) Regulations, 2018, bill of entry shall be deemed to be filed and self-assessment completed when the same is filed electronically and bill of entry number is generated and self-assessed copy is transmitted to the importer.
In the case before the Supreme Court, the department had assailed High Court's judgment accepting importers' contention that when they had filed electronically filed bills of entry and self-assessed duty and paid in some cases, the increase in rate of duty through notification issued in the night on the same day was not applicable. The issue related to terrorist attack in Kashmir in 2019 and India imposed 200% duty on all imported goods from and export goods to Pakistan. Various goods were entered through land border in the evening, bill of entry was filed and self-assessed. In the night after 8 pm, the notification imposing such duty by inserting a new tariff entry in Customs Tariff was issued and the Customs authorities proceeded with re-assessment. The Supreme Court held that this is not a case of incorrect assessment and therefore, Customs could not have resorted to re-assessment.
According to it, the notification issued under Section 8A of Customs Tariff Act providing emergency powers to the government to increase rate of customs duty is part of delegated legislation and is not a 'Central Act' and therefore, not covered by General Clauses Act. The government has decided in 2015 to discontinue the practice of publishing notifications in physical gazette and using the provisions of Information Technology Act, 2000 and regulations thereunder, e-gazette publication has been prescribed as the mode of publication. The IT Act and the relevant regulations provide for manner of e-publishing and time stamp, digital signature, etc., have been mandatorily prescribed and therefore, they are relevant while deciding the relevant date and time of effect of notification issued by CBIC.
This judgment is eloquent on this subject of publication in gazette, whether notification is 'Central Act', whether such notification has retrospective effect, etc. While several routine orders on detention, e-way bill, seizure, etc., are being discussed in this column, it is refreshing to read such detailed discussions in this judgment [UOI v. G.S. Chatha Rice Mills - 2020-VIL-33-SC-CU].
Refund in case of inverted tax structure - Madras HC differs from Gujarat HC
The Madras High Court has differed from Gujarat High Court on the issue of refund of accumulated / unutilised input tax credit arising out of inverted tax structure by holding that such refund is admissible only in respect of "input goods" and the same does not include input services. It noted that because clause (ii) in proviso to Section 54(3) of CGST Act uses "where the credit has accumulated on account of", the legislative intention was to identify the source from which unutilised input tax credit should accumulate for entitlement to refund. According to the Court, such source is "input goods" and the relevant para of the judgment emphasises avoiding such phrase being rendered redundant but unfortunately does not elaborate the reasons for the same.
Based on such conclusion, the HC has further held that Rule 89(5) of CGST Rules which was retrospectively amended to restrict refund only in respect of inputs and to exclude input services, is not ultra vires Section 54(3) as well as Section 164 dealing with general rule making power. Rejecting the contention to adopt common parlance meaning, it has been held that "inputs" in Section 54(3(ii) covers all goods other than capital goods and excludes input services. Arguments on discrimination, absence of reasonableness in classification, etc., have also not been accepted and the provision has been held to be constitutionally valid [Transtonnelstroy Afcons Joint Venture v. UOI - 2020-VIL-459-MAD]. Considering the divergent views of two different High Courts, the issue has to wait for an authoritative pronouncement from the Supreme Court for finality. Considering the arguments from the government side in these cases, it may not be a surprise if retrospective amendment to relevant terms in Section 54(3) is brought in case the Apex Court rules in favour of taxpayers.
Discrepancy in documents and arbitrary action of tax administration - Writ Courts to the rescue of taxpayers
Every case of detention of goods in transit has an inherent element of surprise. The trivial nature of mistake committed by the taxpayer, launching of proceedings by the department as if a major evasion case has been cracked, the taxpayer rushing to High Court and the Court coming to the petrified petitioner's rescue - none of the scene has any surprise but every plot has subtle variation.
In a recent case, a tractor manufacturer was transporting the manufactured vehicles from his factory in Tamil Nadu to his location in Andhra Pradesh. The tax invoice showed location of additional place of business in AP while the e-way bill was mistakenly generated with principal place of business in AP. Whether toll authorities are present or not, tax authorities are always available in the highways, it seems. The vehicle was intercepted and on noticing such mismatch in the documents, the goods were detained, show cause notice was issued demanding tax and penalty. The taxpayer paid all the amounts on the same day, got the goods released but filed petition in High Court contending that the demand is illegal.
The High Court said that no reasonable person would pay such amounts meekly and in this case, they were paid only out of the apprehension of confiscation of goods and arrest of company officials. According to it, the department could have verified the facts in the GST portal. It ordered refund of the amounts paid along with interest and costs were also imposed on the tax authorities. This judgment contains certain incorrect argument about stock-transfer being not liable to tax but the same is not relevant as tax invoice has been issued and the dispute arose primarily on account of discrepancy between the invoice and e-way bill. Even though High Courts have been safeguarding taxpayers against such arbitrary actions of the tax administration, the loss to the economy resulting from diversion of time and efforts from business to such trivial litigation is immeasurable [Same Deutzfahr India P. Ltd. v. State of Telangana - 2020-VIL-467-TEL].
In another case, Bombay High Court has ordered refund of the amount recovered and retained by the department by encashing bank guarantees along with interest. The dispute arose due to detention of goods transported from his one unit to another in a different State and detention was on the ground of e-way bills being faulty and goods were under-valued. Admitted liability was paid in the next month by the taxpayer. However, huge amount of tax was confirmed by the adjudicating authority. The taxpayer paid pre-deposit and filed appeals but the first appellate authority dismissed the appeals. Within 2-3 days, bank guarantees for more than Rs. 4 crores were encashed. Constitution is sacrosanct because it protects citizens from such arbitrary action of retaining huge amounts than what is or what could be due to the exchequer [L.M. Wind Power Blades India Pvt. Ltd. v. State of Maharashtra - 2020-VIL-460-BOM].
Demand as revenue source - Mismatch between GSTR-2A and GSTR-3B helpful
Demand of tax and recovery of input tax credit, mostly unsustainable, are sometimes perceived as source of revenue by tax department. Rule 86A of CGST Rules inserted last year empowers the department to block ITC if there are reasons to believe that ITC has been availed fraudulently like use of invoice from non-existent taxpayer, without receipt of goods, etc. This provision is being used for routine issues like mismatch between the ITC reflected in GSTR-2A and GSTR-3B. It is obvious that Rule 86A does not cover such situation but who can tie the hands of the officer intent on using such rule even for such mismatch?
Aggrieved over such action, the taxpayer who received the goods from an oil major (PSU) pleaded before the High Court that the fault was at the end of the supplier. The Court directed that the writ petition be treated as representation and the authorities shall pass a reasoned order. The taxpayer has argued that such rule was invoked without issuance of notice. The rule expressly mandates that reasons should be recorded in writing while blocking such credit. But breach of rule is the norm and compliance is an exception [Goyal Iron and Steel Traders v. Asst. Commissioner - 2020-VIL-466-DEL].
GST rates - GST Council's decision prevails over FM's reply in Parliament
In the 15th GST Council meeting held before introduction of GST, in respect of textile and textile articles GST rates were discussed and decided. The rate of 5% was recommended for all varieties of fabrics. In the minutes of this meeting, it was also recorded as a statement of CBIC that GST rate of 12% would apply on technical fabrics and specialised fabrics. The petitioners before Delhi High Court argued that the Council had recommended 5% for all fabrics which was not implemented by the government and levying 12% on certain varieties of fabrics was not in line with the recommendations of the Council. The Court had earlier directed that the matter be referred to GST Council so that clarification can be obtained. In the 38th meeting of the GST Council held in December 2019, as per the minutes, it effectively confirmed that GST rate of 12% would apply on technical fabrics and specialised fabrics.
One of the important arguments raised by the petitioners was that the Finance Minister had in reply to a question in Parliament stated that all fabrics would attract GST rate of 5%. However, the High Court has held that GST Council being the constitutional body vested with the powers to recommend rates will prevail over FM's statement/reply. GST Council is not only new but also a hugely powerful body considering its constitutional status and composition. Therefore, clarity on its relationship with organs of the State and extent of its powers may have to come through a Constitutional Bench judgement of the Apex Court [Manufacturers Traders Association v. UOI - 2020-VIL-464-DEL].
AC system installation in offices is not a works contract
The Appellate Authority for Advance Rulings (AAAR), Maharashtra has held that the supply, installation, testing and commissioning of VRF indoor and outdoor units along with attendant works required for execution of air-conditioning work of an office building would not be covered under works contract under the CGST Act. It has upheld the advance ruling wherein it was held that such contract would be treated as composite supply with goods being the principal supply.
The AAAR has relied on certain judgments of Supreme Court to arrive at this conclusion by observing that the work is installation of air-conditioners and it can be dismantled and shifted to another place and therefore, it cannot be considered as an immovable property. The appellant had contended that it is air-conditioning plant and the same is also customised as per location but the same was not accepted by the AAAR. While the appellant relied on Apex Court judgments and CBIC circular under Central Excise on marketability, moveability, etc., the AAAR relied on certain other judgments. Such issues have always been contentious and if execution of a particular work results in immovable property is the question to be answered, then another round of litigation is certain and new jurisprudence has to emerge to conclusively settle the same under GST law [Nikhil Comforts - 2020-VIL-51-AAAR]
(The author is an Advocate practising independently. The views expressed are personal)